ALJ Short Circuits El Paso Affiliate-Abuse Hearing

FERC Chief Administrative Law Judge Curtis L. Wagner stunned his courtroom last week when he abruptly ended the affiliate-abuse phase of the hearing exploring charges against El Paso Natural Gas and affiliate El Paso Merchant Energy after attorneys refused to put El Paso Corp. Chairman William Wise and other top corporate executives on the stand to be questioned by California regulators.

El Paso's attorney offered to let the company executives answer questions from the judge, but argued that it wasn't necessary for them to testify because the California Public Utilities Commission (CPUC), which initiated the complaint against El Paso pipeline and its merchant power affiliates, had not made its case against the companies. "Oh, yes they have," Wagner said, adding that if the companies' behavior didn't constitute affiliate abuse, "then I don't know what does."

The judge once again alluded to a Feb. 14 memo, which remains confidential, as supporting the charges that the pipeline and its merchant energy affiliates conspired to rig the bidding so that the affiliates won a 15-month contract for 1.2 Bcf/d of capacity on El Paso pipeline. The CPUC contends this violated Federal Energy Regulatory Commission (FERC) regulations that bar interstate gas pipelines from showing any preference to affiliates when awarding capacity on their systems.

"The judge told them [El Paso] that you're losing on the affiliate-abuse part of the case, and you need to call witnesses," said CPUC attorney Harvey Morris. But Wise and other top El Paso executives -- John Somerhalder and Ralph Eads -- declined to submit to questioning by the CPUC. This left Wagner with no other option than to end the hearing after only three days. "If they didn't produce their witnesses, and we [the CPUC] had already met our burden of proof, there was nothing to continue with," Morris told NGI.

El Paso issued a lengthy statement Friday --- four days after the hearing ended --- accusing the press of providing "distorted" coverage of the events, which it says has "misled" the "investing public." By the company's own account, "El Paso's senior executives did not refuse to appear at the hearing," said Wise. "The judge requested that some executives be available to answer his questions, and El Paso made them available for that purpose. At the appropriate time, El Paso raised several legal objections to any further El Paso witnesses being required to testify. Contrary to press reports, the judge agreed with El Paso's arguments and there was no further questioning of the executives," he noted.

Furthermore, "despite the heated rhetoric by the complaining parties and comments by the administrative law judge himself, El Paso believes as a matter of law and fact that the complaining parties have not met their burden of proof and no burdens of proof have shifted. No other legally sustainable conclusion can be reached."

FERC initially had dismissed the bid-rigging charges against El Paso, but had ordered a hearing into related charges that El Paso's merchant power affiliates -- El Paso Merchant Energy Gas L.P. and El Paso Merchant Energy Co. -- had market power and used it to manipulate gas prices in southern California since June 2000 (RP00-241). That phase of the hearing (which lasted more than five weeks) ended in June. Critics claim the affiliates had the ability to manipulate prices in southern California, and took advantage of it, based on the sizable amount of capacity that they held on El Paso pipeline.

In the midst of the market-power hearings, Wagner suddenly asked the commissioners for "guidance" as to whether he should re-open the affiliate-abuse issues, suggesting that evidence had emerged during the market power hearing that warranted further review of the charges. In those hearings, Wagner referred to a document --- filed by the CPUC and still under protective seal, available only to parties in the case --- saying it "certainly has statements in it that could lead one to believe there was an abuse" of market power. The New York Times reported that in a Feb.14, 2000 internal memo it had obtained, El Paso Merchant said that its contracted capacity on El Paso pipeline would give it more control of the market (see NGI, May 21). Responding the judge's request, the Commission ordered the affiliate-abuse portion of the case re-opened for an evidentiary hearing (see NGI, June 18).

Wagner has said he plans to issue an initial decision addressing both the affiliate-abuse and market-power issues in early October.

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